DP16523 Spending a Windfall

Author(s): Nuno Pedro G. Palma, André Silva
Publication Date: September 2021
Keyword(s): early modern trade, Euro-Asian trade, international trade, monetary injections, real effects of money
JEL(s): E40, F40, N10
Programme Areas: International Trade and Regional Economics, Economic History, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16523

We study the effect of the discovery of precious metals in America on international trade from 1500 to 1810. Around 1500, there was a simultaneous discovery of precious metals and new trading routes. We construct a counterfactual scenario of new routes but no precious metals. The discovery of precious metals was a windfall to Europe. It increased the stock of precious metals in the world more than tenfold. Compared with the case of no trade routes and no precious metals, Euro-Asian trade increases up to 20 times. We find that American precious metals were at least as important as the new trading routes as a cause of observed trade patterns.